VII. Major Problems Existing in China's Service Companies

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The global financial crisis in 2009 severely impacted the development of China's service industry. However, stronger than the secondary industry, the service industry rose again after a slide. It has been growing in the past two years, with a surge of modern logistics, Internet information, ideas and designs, and brand exhibition as its highlights. Various service zones and special markets have also been established. As a whole, the service industry is becoming more and more diversified, with service outsourcing gradually flourishing. Despite the exhilarating progress China's service companies achieved, there are some problems we need to think about in the industry’s development in the context of the financial crisis.

1. The economic downturn and decrease in exports contained the increase in demand of producer services.

At a primary phrase, China's producer services were mainly dependent on the demands of the secondary industry. Since the global financial crisis hit the world, the growth of China's secondary industry, particularly the manufacturing industry, has slowed. Its demands for producer services were thus weaker. It is worth mentioning that the economic recession and the decline in foreign trade has thrown China's exhibition industry into a dilemma, with fewer businessmen attending exhibitions in China.

2. The financial crisis's impacts on employment and income restrained the development of consumer services.

The spread of the international financial crisis and China's periodic adjustment of its national economy deteriorated the environment of some industries. Unemployment grew in both urban and rural areas, which inevitably hampered the increase in people's incomes. By the end of June 2009, the production in many factories in Southeast China had been suspended because of export reductions. A large number of migrant workers returned to their rural hometowns, contributing to the shrink in consumer demands in migrant labor regions, which undoubtedly contained the expansion of the consumer services.

3. The confidence of both producers and customers was affected, thus limiting the investments in the service industry.

The development of the service industry is dependent on the confidence of people involved. The international financial crisis had worn off investors' will in investing as well as consumer confidence, shadowing the long-term development of the service industry. According to a survey, China's economy began recovering steadily since the second season of 2009. But there were still some prudent entrepreneurs and farmers holding the wait-and-see attitude. Generally speaking, the lack of confidence in domestic consumption would enlarge the influence of the financial crisis and the negative effects of domestic periodic economic adjustments.

4. The service industry's development and service companies' operation became riskier.

 The periodic adjustments to China's economy had contributed to the risks of the operation of various industries. The international financial crisis and its impacts on the real economy had brought more uncertain factors that would affect the supply and demand of the service industry. The following aspects shall be born in mind: first, the economic recovery in the U.S., Japan and European Union could be capacious and full of ups and downs, which might generate a weak trade demand for China; second, some foreign companies and Chinese companies that usually mainly depend on exports might shift to the domestic market and compete with other domestic companies, fuelling price fluctuations in energy and raw material markets; third, as the global financial crisis spread and the periodic adjustments to the national economy deepened, more and more companies might be faced with severe account due crisis, and their funding chains could be more possible to break.

5. The knowledge-intensive business services are not innovative enough or as mature as they are in developed countries.

Even developing countries like India and Brazil have more prosperous knowledge-intensive business services than China. The knowledge-intensive business services in China are of low-technology and lack originality. That's why they are not competitive enough in the world market and often lower quality in the foreign trade. A survey showed that lack of professionals should be kept responsible for the deficient innovation of knowledge-intensive business services, and other factors like financial risks and information inadequacy should also be blamed.

6. Service companies' social responsibilities need strengthening.

Industrial relations are not harmonious, and basic worker rights cannot be guaranteed. The lack of credit is common among companies. The extensive growth pattern caused imbalances in social and economic development. The sense of responsibility for public welfare is deficient among entrepreneurs. Worker and consumer indifference in safeguarding their legal rights has emboldened companies to dodge their social responsibilities, and the complicated procedures for filing complaints also pose obstacles for seeking justice.

7. Brand-building of Chinese service companies lagged behind.

Despite the progress China has made in brand-building, its influence is still restrained at home. The 500 Global Brands selected by the World Brand Laboratory in 2010 suggested that Chinese entrepreneurs' consciousness of brand-building is strengthening. However, most of the 18 Chinese companies listed in the world's top 500 companies in 2010 are state-owned banks or large-sized companies specializing in infrastructure industry; none were an international brand forged by market competition. To establish their global brands, Chinese entrepreneurs should make an overall strategy for brand-building, delve deeper into the core value of brands, and continuously maintain and nurture the good reputation of their brands.

8. The interaction between producer services and manufacturing was not active.

When producer services and manufacturing interact with each other, production innovation in manufacturing will promote the innovation in producer services and the latter's demands will inspire the former's innovation. China's producer service still lags behind many developed countries, which diminish the competitive advantages of China's manufacturing. Without the strong supports of producer services, the innovation capability of China's manufacturing would be rather weak. Then, it can be easy to understand why so many core technologies have to be imported and why we cannot produce goods with independent intellectual property rights and strong competitiveness. 


Report on Top 500 Service Companies of China in 2010

Chapter I.

Scale and Distribution Features

Chapter II.

Performance Features

Chapter III.

Industrial Distribution

Chapter IV.

Regional Distribution

Chapter V.

Ownership Distribution

Chapter VI.

Development Trend Analysis









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